Exhibit 10.86


[AROTECH LOGO]                                               Arotech Corporation

                                                        632 Broadway, Suite 1200
                                                        New York, New York 10012
                                     Tel:  (646) 654-2107   Fax:  (646) 654-2187
                                                          http://www.arotech.com
                                           Writer's direct dial: +972-2-990-6612
                                            Writer's direct fax: +972-2-990-6688
                                            Writer's e-mail: ehrlich@arotech.com
Robert S. Ehrlich
Chairman, President and Chief Executive Officer


                                 January 1, 2004


Mr. Edward J. Borey Mukilteo, Washington 98275-1125


Dear Ed:

                            Re: Consulting Agreement
                                --------------------

         The following  confirms our understanding  with regard to the terms and
conditions of your  retention by Arotech  Corporation  (you will  hereinafter be
referred to as the  "Consultant"  and Arotech  Corporation  will  hereinafter be
referred to as the "Company").

1.       Retention of Consultant; Scope of Duties and Services.

         (a) The Company hereby engages the Consultant and the Consultant hereby
accepts such engagement and agrees to provide the Company with the such services
as may be requested from time to time with the agreement of the parties  hereto.
The Consultant  agrees that the services provided by him must be satisfactory to
and approved by the Company,  and that he will promptly remedy any deficiency at
no additional cost or expense to the Company.

         (b) The parties  hereto  agree that the  services to be provided by the
Consultant hereunder shall be as an independent consultant,  and not as employee
or agent.  The parties  further agree that any personnel of, or retained by, the
Consultant  who perform  services  hereunder  are not and shall not be deemed to
employees, agents or representatives of the Company. This Agreement shall not be
construed to create the  relationship  of principal or agent,  joint  venturers,
co-partners or any  relationship  other than that of independent  Consultant and
client,  and the existence of any such other  relationship  is hereby  expressly
denied by the Company and the Consultant.  Neither the Consultant nor any of his
agents,  employees, or representatives shall have any power or authority to bind
the  Company  or to  assume  or to  create  any  obligation  or  responsibility,
expressed or implied, on behalf of or in the name of the Company.

         (c) The  Consultant  acknowledges  and  agrees  that  he has  the  sole
responsibility  to pay any and all  taxes due on fees  received  by him from the
Company and to pay or withhold (as appropriate) all applicable  social security,
income  withholding  and other  payroll  or related  taxes  with  respect to his
employees,  agents and other personnel who may perform services  hereunder,  and
the  Consultant  shall file or cause to be filed all tax returns and all reports
and keep all  records  which may be  required  by any law or  regulation  of the
country or countries to whose laws he is subject or any state or municipality or
governmental  subdivision  with respect to his  activities and the activities of
any of personnel working for him.

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         (d) The Consultant  acknowledges that as a director of the Company,  he
owes the Company the highest  fiduciary  duty, and he will therefore (i) refrain
from  participating  in the discussion or voting in any meeting of the Company's
Board of Directors  (the "Board") on any issue relating to this agreement or the
scope of his consulting work with the Company,  including without limitation any
discussion  of  proposed  acquisitions  by the  Company,  whether  or  not  such
acquisition falls within the scope of his consulting work with the Company,  and
(ii)  promptly  disclose to the Board any  conflict  of  interest  or  potential
conflict of interest that he might have in connection with this Agreement on any
other  issue  that  may come  before  the  Board.  Furthermore,  the  Consultant
acknowledges  that as a result of this Agreement he will not be an  "Independent
Director" under  applicable SEC and Nasdaq  regulations and accordingly  will be
ineligible to sit on the Audit Committee or any other  independent  committee of
the Board.

2.       Term.

         (a) The term of this  Agreement  shall  commence  on and as of the date
hereof and shall  continue for a period of one year unless sooner  terminated as
hereinafter  provided.  Notwithstanding  the  foregoing,  all of the  rights and
remedies of the parties  hereto under the terms of this Agreement and in law and
in equity shall be preserved  even after the  termination  or expiration of this
Agreement.

         (b) This  Agreement  may be  terminated  by either  party  for  "cause"
immediately  following  written notice  thereof  specifying the reasons for such
termination.  In the event that this  Agreement is terminated by the Company for
cause,  the Consultant shall forfeit all rights to compensation for his services
hereunder.

         (c) As used in this  Agreement,  "cause" shall mean fraud,  dishonesty,
gross negligence or willful misconduct.

3.       Fees and Expenses; Record Keeping.

         (a) For all services  rendered by the Consultant  under this Agreement,
the Company shall compensate the Consultant as follows:

               o    32,000 shares of the Company's common stock, to be issued at
                    par value,  to be held by the Company in escrow and released
                    in 8,000 share  installments  at the end of each of the next
                    four fiscal quarters;

               o    Transaction  fees in  respect of  acquisitions  in which the
                    Consultant  plays a "critical  role" (as  determined  by the
                    Company in its sole and absolute  discretion) in identifying
                    and/or initiating and/or  negotiating the transaction in the
                    amount  of (i) 1.5% of the  value of the  transaction  up to
                    $10,000,000,  plus (ii) 1.0% of the value of the transaction
                    in excess of $10,000,000 and up to $50,000,000,  plus, (iii)
                    0.5%  of  the  value  of  the   transaction   in  excess  of
                    $50,000,000,  minus  (iv)  the  value  of any  common  stock
                    released  from escrow as noted in the  preceding  paragraph,
                    based on its value on the date of its release from escrow;

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               o    Additional  fees for services  rendered in  connection  with
                    acquisitions  not identified or initiated by the Consultant,
                    in amounts to be negotiated on a case-by-case  basis between
                    the Consultant and the Company;

provided,  however,  that the Company  shall not be obligated  to continue  such
payments in the event that this Agreement is terminated by the Company for cause
(as defined in Section 2(c) above).

         (b) The Consultant  will be reimbursed for travel and lodging and other
expenses pre-approved by the CEO of the Company. This pre-approval can be in the
form of an email from the CEO of the Company to the Consultant upon  appropriate
e-mail request from the Consultant. The Consultant shall bear and be responsible
for all other  costs and  expenses  incurred  by him in  performing  his  duties
hereunder.

         (c) The  Consultant  shall  maintain  complete and accurate  accounting
records to  substantiate  any charges for  disbursements  and any other expenses
which are payable by the Company (if any). Such records shall include but not be
limited to proper and adequate receipts,  time and attendance  records,  payroll
records and job summaries,  and the  Consultant  shall retain such records for a
period of three (3) years from the last date of payment hereunder.

4.       Warranties.

         (a) The Consultant warrants that all services provided by him hereunder
will be rendered in a competent and  professional  manner and that such services
will conform in all respects to (i) generally-accepted industry and professional
standards  then  applicable to such services and products,  (ii) all  applicable
laws, rules,  regulations and professional  codes, and (iii) any  specifications
and  requirements  applicable  to the services and any products  contracted  for
hereunder  (including  a  delivery  timetable)  which  may  be set  forth  in an
agreement  between the Company and a third party or parties.  The Company  shall
have the right to extend the Consultant's warranties herein to third parties and
the Consultant  shall be liable thereon to the same extent as if such warranties
were originally made to such third parties.

         (b) The warranties  contained  herein shall survive the termination and
expiration of this Agreement regardless of the reasons therefor.

5.       Confidential Information; Return of Materials; Inventions.

         (a) In the  course  of his  retention  by the  Company  hereunder,  the
Consultant  will  have  access  to,  and  become  familiar  with,  "Confidential
Information"  (as hereinafter  defined) of the Company.  The Consultant shall at
all times hereinafter maintain in the strictest confidence all such Confidential
Information  and shall not divulge any  Confidential  Information to any person,
firm or  corporation  without  the prior  written  consent of the  Company.  For
purposes hereof,  "Confidential  Information"  shall mean all information in any
and  all  medium  which  is  confidential  by  its  nature  including,   without
limitation,  data,  technology,  know-how,  inventions,   discoveries,  designs,
processes,  formulations,  models and/or trade and business  secrets relating to
any line of  business  in which  the  Company's  marketing  and  business  plans
relating to current, planned or nascent products.

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         (b) The Consultant  shall not use  Confidential  Information for, or in
connection with, the  development,  manufacture or use of any product or for any
other  purpose  whatsoever  except  as and to the  extent  necessary  for him to
perform his obligations under this Agreement.

         (c) Notwithstanding the foregoing,  Confidential  Information shall not
include  information  which  the  Consultant  can  evidence  to the  Company  by
appropriate documentation: (i) is in, or enters the public domain otherwise than
by reason of breach hereof by the Consultant; (ii) is known by the Consultant at
the  time  of  disclosure  thereof  by  the  Company;  or  (iii)  is  rightfully
transmitted  or  disclosed  to the  Consultant  by a third  party  which owes no
obligation of confidentiality with respect to such information.

         (d) All Confidential Information made available to, or received by, the
Consultant  shall remain the  property of the  Company,  and no license or other
rights in or to the Confidential Information is granted hereby.

         (e) All files, records, documents, drawings, specifications, equipment,
and similar items relating to the business of the Company,  whether  prepared by
the Consultant or otherwise coming into his possession,  and whether  classified
as Confidential  Information or not, shall remain the exclusive  property of the
Company.  Upon  termination or expiration of this Agreement,  or upon request by
the Company,  the  Consultant  shall  promptly turn over to the Company all such
files, records,  reports,  analyses,  documents,  and other material of any kind
concerning  the  Company  which the  Consultant  obtained,  received or prepared
pursuant to this Agreement.

         (f) Confidential  Information shall not include  information brought to
the Company by the Consultant,  where the Company does not subsequently  utilize
such  information in the ordinary course of its business  (including as a result
of changes to its business).

         (g) The  provisions of this Section shall  survive the  termination  of
this  Agreement.  The Consultant  acknowledges  that the provisions set forth in
this Section of this Agreement are fair and reasonable.

6.       Miscellaneous.

         (a) This  Agreement  shall  inure to the benefit of the Company and its
successors and assigns.

         (b) This  Agreement  shall be subject to,  governed by and construed in
accordance  with,  the laws of the State of New York without regard to conflicts
of law  provisions  and  principles  of that  State,  and the courts  located in
Manhattan, New York shall have exclusive jurisdiction of any dispute hereunder.

         (c) This Agreement contains the entire agreement between the Consultant
and the  Company  with  respect  to all  matters  relating  to the  Consultant's
retention by the Company and will  supersede  and replace all prior  agreements,
written or oral,  between the parties  relating  to the terms or  conditions  of
Consultant's retention.

         (d) Neither the  Consultant nor the Company will be deemed to have made
any representation,  warranty,  covenant or agreement except for those expressly
set forth herein.

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                                      -5-

[AROTECH LOGO]


If the foregoing  satisfactorily  reflects the mutual understanding  between you
and the Company, kindly sign and return to the Company the enclosed copy of this
letter. On behalf of the Company,  I want to take this opportunity to state that
we look forward to our working relationship with you.

                                            Very truly yours,

                                            AROTECH CORPORATION



                                            By:
                                                ----------------------------
                                                Robert S. Ehrlich
                                                Chairman, President and CEO

ACCEPTED AND AGREED:



------------------------------
      Edward J. Borey